DEERFIELD, Ill., July 26, 2018 /PRNewswire/ -- Essendant Inc.
(NASDAQ: ESND), a leading national distributor of workplace items,
today announced financial results for the second quarter ended
June 30, 2018 as follows:
Second Quarter 2018 Summary
- Net sales declined 0.5% to $1.3
billion in the quarter, when compared to the prior year
quarter.
- GAAP loss per share in the quarter was $(0.00) compared to income per share of
$0.14 in the prior year quarter. GAAP
net loss was $(0.1) million in the
quarter compared to income of $5.1
million in the prior year quarter.
- Adjusted diluted earnings per share(1) in the
quarter was $0.16, compared to
$0.28 in the prior year quarter.
Adjusted net income (1) was $6.1
million in the quarter compared to $10.3 million in the second quarter of 2017. The
results for the second quarter of 2018 were inclusive of a
$5.1 million reduction in a
receivables reserve for one customer, which benefited earnings per
share by $0.09 in the quarter.
- Free cash flow(1) was $37.2
million in the quarter and $7.9
million in the first six months of 2018, including
$4.1 million in the quarter and
$4.5 million in the first six months
of transaction costs related to the S.P. Richards merger.
"Our second quarter results give us confidence that our strategy
is working," said Ric Phillips,
President and Chief Executive Officer of Essendant. "Our
efforts to drive sales growth in key channels began to offset the
decline from national resellers. Our cost reduction efforts
are successfully ramping, and our restructuring program continues
to deliver expected results. We expect to deliver an
annualized run rate of cost savings over $50
million by 2020, with more than half of those savings
realized this year. In connection with our previously
announced merger with Genuine Parts Company's S.P. Richards
business, we filed an amended Form S-4 last week and continue to
work toward closing the merger by the end of the year."
Second Quarter Performance
- Net sales decreased 0.5% compared to the prior year quarter,
driven by reduced sales in the national reseller channel being
partially offset by higher sales in the Industrial, Independent
reseller and Automotive channels. Net sales by product category
were:
-
- JanSan Products: decreased $(3.4)
million or 1.0% to $346.3
million.
- Technology Products: decreased $(10.9)
million or 3.5% to $298.8
million.
- Traditional Office Products: decreased $(10.1) million or 5.4% to $176.6 million.
- Industrial Supplies: increased $16.9
million or 11.6% to $163.0
million.
- Cut-sheet Paper Products: increased $6.4
million or 5.8% to $116.0
million.
- Automotive Products: increased $3.2
million or 4.0% to $85.4
million.
- Office Furniture: decreased $(6.9)
million or 9.9% to $63.0
million.
- Gross profit was $173.2 million,
a decline of $(4.4) million versus
the prior year quarter primarily due to increased freight costs and
lower product margin resulting from lower supplier allowances and
sales mix, partially offset by a reduction in product assortment
reserves of $8.6 million. Adjusted
gross profit(1) was $164.7
million compared to $177.6
million in the prior year quarter.
- Operating expenses were $164.6
million, an increase from $161.0
million in the prior year quarter due primarily to
restructuring expenses of $8.0
million, partially offset by a $5.1
million reduction in a receivables reserve for one customer.
Adjusted operating expenses were $146.7
million, a decrease of $(5.8)
million from the prior year quarter primarily due to the
reduction in allowance on receivables from one customer.
- Income tax benefit was $0.1
million in the second quarter of 2018, compared to income
tax expense of $4.5 million in the
prior year quarter due to a net loss in the second quarter. Income
tax expense on adjusted net income was $3.0
million, compared to adjusted income tax expense of
$7.7 million in the prior year
quarter.
- GAAP loss per share was ($0.00)
compared to income per share of $0.14
in the prior year quarter. Adjusted diluted earnings per
share(1) was $0.16
compared to $0.28 in the prior year
quarter, including the earnings per share impact in the quarter of
$0.09 due to the reduction in a
receivables reserve for one customer.
- Cash flow for the first six months of 2018 was $2.9 million. Operating cash flow in the first
six months included $4.5 million in
transaction costs related to the S.P. Richards merger. Investing
cash flow reflects $19 million of
investment in the independent reseller channel during the second
quarter. Free cash flow(1) totaled $37.2 million in the second quarter of 2018 and
$7.9 million in the first six months
of 2018.
Outlook for 2018
The following outlook excludes the
impacts of any new acquisitions or unusual charges.
- Net sales for full year 2018 are expected to be down 1%
to down 3% from the prior year.
- Adjusted diluted earnings per share(1) in the
second half of 2018 are expected to be better than the first half
of 2018 and better than the second half of 2017, as cost
improvement efforts will continue to scale through the year.
- Free cash flow(1) for 2018, including the
costs and benefits of the Company's previously announced
restructuring program, but excluding transaction costs related to
the S.P. Richards merger, is expected to be in excess of
$40 million for the full year. Total
transaction costs related to the S.P. Richards merger are expected
to be approximately $40 million with
an estimated $25 million payable upon
closing.
Conference Call
Essendant will hold a conference call
followed by a question and answer session on Friday, July 27, 2018, at 7:30 a.m. CDT, to discuss second quarter 2018
results. Investors may participate in the earnings call by dialing
(877) 358-2531 in the U.S., (855) 669-9657 in Canada or (412) 902-6623 if international and
ask to be joined into the Essendant call. To listen to the webcast,
participants should visit the Investors section of the company's
website (investors.essendant.com), and click on the "Essendant Q2
2018 Earnings Call" button on the right side of the page, several
minutes before the event is broadcast. Interested parties can
access an archived version of the call, this news release, a
financial slide presentation and other information related to the
call, also located on the quarterly results section of Essendant's
investor website, within hours after the call ends.
Forward-Looking Statements
This release contains
forward-looking statements, including statements regarding the
proposed business combination transaction between the Company and
Genuine Parts Company ("GPC") in which GPC will separate its
Business Products Group and combine this business with Essendant.
From time to time, oral or written forward-looking statements may
also be included in other information released to the public. These
forward-looking statements are intended to provide management's
current expectations or plans for our future operating and
financial performance, based on assumptions currently believed to
be valid. Forward-looking statements often contain words such as
"expects," "anticipates," "estimates," "intends," "plans,"
"believes," "seeks," "will," "is likely to," "scheduled,"
"positioned to," "continue," "forecast," "predicting,"
"projection," "potential" or similar expressions. Forward-looking
statements may include references to goals, plans, strategies,
objectives, projected costs or savings, anticipated future
performance, results, events or transactions of the Company or the
combined company following the proposed transaction with GPC, the
anticipated benefits of the proposed transaction, including
estimated synergies, the expected timing of completion of the
transaction, and other statements that are not strictly historical
in nature. These forward-looking statements are based on
management's current expectations, forecasts and assumptions. This
means they involve a number of risks and uncertainties that could
cause actual results to differ materially from those expressed or
implied here, including but not limited to: market dynamics that
create sales risks, including the Company's reliance on key
customers, including key customers in the independent reseller
channel, the risks inherent in continuing or increased customer
concentration and consolidations, efforts by suppliers and
customers to bypass the Company and transact directly with each
other, and competition from e-commerce businesses and other
resellers increasing their presence at the wholesale level; the
impact of price transparency, customer consolidation and product
sales mix changes on the Company's sales and margins; the Company's
reliance on supplier allowances and promotional incentives; the
Company's exposure to the credit risk of its customers; potential
disruptions to the Company's relationships with customers and
suppliers due to the Company's significant cost reduction
initiatives; continuing or increasing competitive activity and
pricing pressures within existing or expanded product categories,
including competition from e-commerce businesses and the online
branches of brick-and-mortar businesses; the impact of supply chain
disruptions or changes in key suppliers' distribution strategies;
continued declines in end-user demand for products in the office,
technology and furniture product categories; financial cycles due
to secular consumer demand, recession or other events, most notably
in the Company's Industrial and Automotive businesses; the impact
of the Company's strategic objectives and possible disruption of
business operations and relationships with customers and suppliers;
the Company's ability to manage inventory in order to maximize
sales and supplier allowances while minimizing excess and obsolete
inventory; the Company's success in effectively identifying,
consummating and integrating acquisitions; the Company's ability to
attract and retain key management personnel; the costs and risks
related to compliance with laws, regulations and industry standards
affecting the Company's business; the Company's ability to maintain
its existing information technology systems and to successfully
procure, develop and implement new systems and services without
business disruption or other unanticipated difficulties or costs;
the impact on the Company's reputation and relationships of a
breach of the Company's information technology systems or a failure
to maintain the security of private information; the availability
of financing sources to meet the Company's business needs;
unexpected events that could disrupt business operations,
increasing costs and decreasing revenues; the ability of the
Company and GPC to receive the required regulatory approvals for
the proposed transaction and approval of the Company's stockholders
and to satisfy the other conditions to the closing of the
transaction on a timely basis or at all; the occurrence of events
that may give rise to a right of one or both of the Company and GPC
to terminate the merger agreement; negative effects of the
announcement or the consummation of the transaction with GPC on the
market price of the Company's common stock and/or on its business,
financial condition, results of operations and financial
performance; risks relating to the value of the shares of the
Company to be issued in the transaction with GPC, significant
transaction costs and/or unknown liabilities; the possibility that
the anticipated benefits from the proposed transaction with GPC
cannot be realized in full or at all or may take longer to realize
than expected; risks associated with contracts containing consent
and/or other provisions that may be triggered by the proposed
transaction with GPC; risks associated with litigation related to
the transaction with GPC; the possibility that costs or
difficulties related to the integration of the Company and GPC's SP
Richards business will be greater than expected; and the ability of
the combined company to retain and hire key personnel. There can be
no assurance that the proposed transaction with GPC or any other
transaction will in fact be consummated in the manner described or
at all. Stockholders, potential investors and other readers are
urged to consider these risks and uncertainties in evaluating
forward-looking statements and are cautioned not to place undue
reliance on the forward-looking statements. It is not possible to
anticipate or foresee all risks and uncertainties, and investors
should not consider any list of risks and uncertainties to be
exhaustive or complete. For additional information on identifying
factors that may cause actual results to vary materially from those
stated in forward-looking statements, please see the Company's and
GPC's statements and reports on Forms S-4, 10-K, 10-Q and 8-K filed
with or furnished to the U.S. Securities and Exchange Commission
and other written statements made by the Company and/or GPC from
time to time. The forward-looking information herein is given as of
this date only, and neither the Company nor GPC undertakes any
obligation to revise or update it.
Company Overview
Essendant Inc. is a leading national distributor of workplace
items, with 2017 net sales of $5.0
billion. The company provides access to a broad assortment
of over 170,000 items, including janitorial and breakroom supplies,
technology products, traditional office products, industrial
supplies, cut sheet paper products, automotive products and office
furniture. Essendant serves a diverse group of customers, including
independent resellers, national resellers and e-commerce
businesses. The Company's network of 61 distribution centers
enables the Company to ship most products overnight to more than
ninety percent of the U.S. For more information, visit
www.essendant.com.
Essendant common stock trades on the NASDAQ Global Select Market
under the symbol ESND.
(1)
|
This is non-GAAP
information. See the Reconciliation of Non-GAAP Financial Measures
section of this document for more information.
|
For Further Information Contact:
investorrelations@essendant.com
(847) 627-2900
Essendant Inc. and
Subsidiaries
|
Condensed
Consolidated Statements of Operations
|
(in thousands, except
per share data)
|
|
|
For the Three
Months Ended
|
|
For the Six Months
Ended
|
|
June 30,
|
|
June 30,
|
|
2018
|
|
2017* Revised
|
|
2018
|
|
2017* Revised
|
Net sales
|
$
|
1,254,222
|
|
$
|
1,260,656
|
|
$
|
2,494,378
|
|
$
|
2,530,038
|
Cost of goods
sold
|
|
1,081,016
|
|
|
1,083,092
|
|
|
2,199,996
|
|
|
2,166,807
|
Gross
profit
|
|
173,206
|
|
|
177,564
|
|
|
294,382
|
|
|
363,231
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Warehousing, marketing
and administrative expenses
|
|
156,574
|
|
|
160,972
|
|
|
322,119
|
|
|
333,270
|
Restructuring
charges
|
|
8,019
|
|
|
-
|
|
|
22,080
|
|
|
-
|
Impairment of
goodwill
|
|
-
|
|
|
-
|
|
|
-
|
|
|
198,828
|
Operating (loss)
income
|
|
8,613
|
|
|
16,592
|
|
|
(49,817)
|
|
|
(168,867)
|
Interest and other
expense, net
|
|
8,850
|
|
|
7,022
|
|
|
17,072
|
|
|
14,485
|
(Loss) income before
income taxes
|
|
(237)
|
|
|
9,570
|
|
|
(66,889)
|
|
|
(183,352)
|
Income tax (benefit)
expense
|
|
(140)
|
|
|
4,474
|
|
|
(15,352)
|
|
|
146
|
Net (loss)
income
|
$
|
(97)
|
|
$
|
5,096
|
|
$
|
(51,537)
|
|
$
|
(183,498)
|
Net (loss) income per
share - basic:
|
$
|
(0.00)
|
|
$
|
0.14
|
|
$
|
(1.40)
|
|
$
|
(5.01)
|
Average number of
common shares outstanding - basic
|
|
36,925
|
|
|
36,673
|
|
|
36,895
|
|
|
36,659
|
Net (loss) income per
share - diluted:
|
$
|
(0.00)
|
|
$
|
0.14
|
|
$
|
(1.40)
|
|
$
|
(5.01)
|
Average number of
common shares outstanding - diluted
|
|
36,925
|
|
|
36,873
|
|
|
36,895
|
|
|
36,659
|
Dividends declared
per share
|
$
|
0.14
|
|
$
|
0.14
|
|
$
|
0.28
|
|
$
|
0.28
|
|
* Revised for the
impact of the adoption of a new pension accounting
pronouncement.
|
Essendant Inc. and
Subsidiaries
|
Condensed
Consolidated Balance Sheets
|
(in thousands, except
share data)
|
|
|
(Unaudited)
|
|
(Audited)
|
|
As of
June 30,
|
|
As of
December 31,
|
|
2018
|
|
2017
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
31,751
|
|
$
|
28,802
|
Accounts receivable,
less allowance for doubtful accounts of $16,677 in 2018 and $17,102
in 2017
|
|
640,134
|
|
|
619,200
|
Inventories
|
|
742,886
|
|
|
821,683
|
Other current
assets
|
|
63,903
|
|
|
43,044
|
Total current
assets
|
|
1,478,674
|
|
|
1,512,729
|
Property, plant and
equipment, net
|
|
129,927
|
|
|
132,793
|
Intangible assets,
net
|
|
68,547
|
|
|
73,441
|
Goodwill
|
|
13,065
|
|
|
13,153
|
Other long-term
assets
|
|
73,061
|
|
|
42,134
|
Total
assets
|
$
|
1,763,274
|
|
$
|
1,774,250
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Accounts
payable
|
$
|
526,263
|
|
$
|
500,883
|
Accrued
liabilities
|
|
195,342
|
|
|
189,916
|
Current maturities of
long-term debt
|
|
6,072
|
|
|
6,079
|
Total current
liabilities
|
|
727,677
|
|
|
696,878
|
Deferred income
taxes
|
|
1,175
|
|
|
1,192
|
Long-term
debt
|
|
518,660
|
|
|
492,044
|
Other long-term
liabilities
|
|
76,525
|
|
|
89,222
|
Total
liabilities
|
|
1,324,037
|
|
|
1,279,336
|
Stockholders'
equity:
|
|
|
|
|
|
Common stock, $0.10
par value; authorized - 100,000,000 shares, issued - 74,435,628
shares in 2018 and 2017
|
|
7,444
|
|
|
7,444
|
Additional paid-in
capital
|
|
415,449
|
|
|
412,987
|
Treasury stock, at
cost – 36,725,594 shares in 2018 and 36,811,366 shares in
2017
|
|
(1,091,993)
|
|
|
(1,093,813)
|
Retained
earnings
|
|
1,156,910
|
|
|
1,219,309
|
Accumulated other
comprehensive loss
|
|
(48,573)
|
|
|
(51,013)
|
Total stockholders'
equity
|
|
439,237
|
|
|
494,914
|
Total liabilities and
stockholders' equity
|
$
|
1,763,274
|
|
$
|
1,774,250
|
Essendant Inc. and
Subsidiaries
|
Condensed
Consolidated Statements of Cash Flows
|
(in
thousands)
|
|
|
For the Six Months
Ended
|
|
June 30,
|
|
2018
|
|
2017
|
Cash Flows From
Operating Activities:
|
|
|
|
|
|
Net loss
|
$
|
(51,537)
|
|
$
|
(183,498)
|
Adjustments to
reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
Depreciation and
amortization
|
|
21,389
|
|
|
21,534
|
Share-based
compensation
|
|
4,441
|
|
|
4,038
|
Gain on the
disposition of property, plant and equipment
|
|
(771)
|
|
|
(656)
|
Amortization of
capitalized financing costs
|
|
713
|
|
|
804
|
Deferred income
taxes
|
|
(9,352)
|
|
|
(270)
|
Change in contingent
consideration
|
|
(700)
|
|
|
-
|
Impairment of
goodwill
|
|
-
|
|
|
198,828
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
(Increase) decrease in
accounts receivable, net
|
|
(21,385)
|
|
|
14,434
|
Decrease in
inventory
|
|
78,385
|
|
|
76,757
|
Increase in other
assets
|
|
(22,108)
|
|
|
(1,178)
|
Increase in accounts
payable
|
|
25,189
|
|
|
24,133
|
Increase (decrease) in
accrued liabilities
|
|
9,368
|
|
|
(19,603)
|
Decrease in other
liabilities
|
|
(9,955)
|
|
|
(9,512)
|
Net cash provided by
operating activities
|
|
23,678
|
|
|
125,811
|
Cash Flows From
Investing Activities:
|
|
|
|
|
|
Capital
expenditures
|
|
(16,026)
|
|
|
(13,677)
|
Proceeds from the
disposition of property, plant and equipment
|
|
296
|
|
|
-
|
Investment in
independent reseller channel
|
|
(19,000)
|
|
|
-
|
Net cash used in
investing activities
|
|
(34,730)
|
|
|
(13,677)
|
Cash Flows From
Financing Activities:
|
|
|
|
|
|
Net borrowing under
revolving credit facility
|
|
28,867
|
|
|
31,375
|
Borrowings under Term
Loan
|
|
-
|
|
|
77,600
|
Repayments under Term
Loan
|
|
(3,036)
|
|
|
(1,518)
|
Contingent
consideration
|
|
(967)
|
|
|
-
|
Net repayments under
Securitization Program
|
|
-
|
|
|
(200,000)
|
Net disbursements from
share-based compensation arrangements
|
|
(238)
|
|
|
(600)
|
Payment of cash
dividends
|
|
(10,425)
|
|
|
(10,339)
|
Payment of debt
issuance costs
|
|
-
|
|
|
(6,277)
|
Net cash provided by
(used in) financing activities
|
|
14,201
|
|
|
(109,759)
|
Effect of exchange
rate changes on cash and cash equivalents
|
|
(200)
|
|
|
185
|
Net change in cash
and cash equivalents
|
|
2,949
|
|
|
2,560
|
Cash and cash
equivalents, beginning of period
|
|
28,802
|
|
|
21,329
|
Cash and cash
equivalents, end of period
|
$
|
31,751
|
|
$
|
23,889
|
Other Cash Flow
Information:
|
|
|
|
|
|
Income tax payments,
net
|
$
|
843
|
|
$
|
19,058
|
Interest
paid
|
|
14,537
|
|
|
11,809
|
Essendant Inc. and
Subsidiaries
Reconciliation of Non-GAAP Financial
Measures
Adjusted Gross Profit, Adjusted Operating
Expenses, Adjusted Operating Income,
Adjusted Net
Income, Adjusted Diluted Earnings Per Share, Adjusted EBITDA, and
Free Cash Flow
The Non-GAAP table below presents Adjusted Gross Profit,
Adjusted Operating Expenses, Adjusted Operating Income, Adjusted
Net Income, Adjusted Diluted Earnings per Share, Adjusted EBITDA
and Free Cash Flow for the three and six months ended June 30, 2018 and 2017 (in thousands, except per
share data). These non-GAAP measures exclude certain non-recurring
items and exclude other items that do not reflect the Company's
ongoing operations and are included to provide investors with
useful information about the financial performance of our business.
The presented non-GAAP financial measures should not be considered
in isolation or as substitutes for the comparable GAAP financial
measures. The non-GAAP financial measures do not reflect all of the
amounts associated with our results of operations as determined in
accordance with GAAP, and these non-GAAP financial measures should
only be used to evaluate our results of operations in conjunction
with the corresponding GAAP financial measures.
In order to calculate the non-GAAP measures, management excludes
the following items to the extent they occur in the reporting
period, to facilitate the comparison of current and prior year
results and ongoing operations, as management believes these items
do not reflect the underlying cost structure of our business. These
items can vary significantly in amount and frequency.
- Restructuring charges. Workforce reduction and facility
closure charges such as employee termination costs, facility
closure and consolidation costs, and other costs directly
associated with shifting business strategies or business conditions
that are part of a restructuring program.
Restructuring actions were taken in the three and six months ended
June 30, 2018 that included facility
consolidations, workforce reductions and product assortment
refinements.
- Gain or loss on sale of assets or businesses. Sales of
assets, such as buildings or equipment, and businesses can cause
gains or losses. These transactions occur as the Company is
repositioning its business and reviewing its cost structure.
- Severance costs for operating leadership.
Employee termination costs related to members of the Company's
operating leadership team are excluded as they are based upon
individual agreements.
- Asset impairments. Changes in strategy or
macroeconomic events may cause asset impairments.
In the six months ended June 30,
2017, the Company recorded goodwill impairment which
resulted from declines in sales, earnings and market
capitalization.
- Other actions. Actions, which may be non-recurring
events, that result from the changing strategies and needs of the
Company and do not reflect the underlying expense of the on-going
business.
In the three and six months ended June 30,
2018, these were charges related to transformational
expenses, including potential merger, acquisition and equity
investment transactions, and a gain reflecting receipt of payment
on notes receivable reserved in 2015. In the three and six months
ended June 30, 2017, other actions
included litigation and transformational expenses.
Adjusted Gross Profit, adjusted operating expenses and
adjusted operating income. Adjusted gross profit, adjusted
operating expenses and adjusted operating income provide management
and our investors with an understanding of the results from the
primary operations of our business by excluding the effects of
items described above that do not reflect the ordinary expenses and
earnings of our operations. Adjusted gross profit, adjusted
operating expenses and adjusted operating income are used to
evaluate our period-over-period operating performance as they are
more comparable measures of our continuing business. These measures
may be useful to an investor in evaluating the underlying operating
performance of our business.
Adjusted net income and adjusted diluted earnings per
share. Adjusted net income and adjusted diluted earnings per
share provide a more comparable view of our Company's underlying
performance and trends than the comparable GAAP measures. Net
(loss) income and diluted (loss) earnings per share are adjusted
for the effect of items described above that do not reflect the
ordinary earnings of our operations.
Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA). Adjusted EBITDA is helpful in evaluating
our operating performance and is used by management for various
purposes, including as a measure of performance and as a basis for
strategic planning and forecasting. Net (loss) income is adjusted
for the effect of interest and other expenses, net, taxes,
depreciation and amortization and stock-based compensation expense.
Management believes that adjusted EBITDA is also commonly used by
investors to evaluate operating performance between competitors
because it helps reduce variability caused by differences in
capital structures, income taxes, stock-based compensation
accounting policies, and depreciation and amortization
policies.
Free cash flow. Free cash flow is useful to management
and our investors as it is a measure of the Company's liquidity. It
provides a more complete understanding of factors and trends
affecting our cash flows than the comparable GAAP measure. Net cash
provided by operating activities and net cash used in investing
activities are aggregated and adjusted to exclude the impact of
acquisitions and equity investments, net of cash acquired and
divestitures.
Outlook. Adjusted diluted earnings per share and free
cash flow are non-GAAP measures. A quantitative reconciliation of
non-GAAP guidance to the corresponding GAAP information is not
available because the non-GAAP guidance excludes certain GAAP
information that is uncertain and difficult to predict. The
adjusted diluted earnings per share guidance excludes impacts in
the three and six months ended June 30,
2018 of $0.25 and $1.88 per share, respectively, related to
restructuring charges, transformational expenses and a payment on
notes receivable reserved in 2015. Actual amounts appear in the
non-GAAP table included later in this section. For the remainder of
the year, the factors that will be excluded are currently unknown
due to the level of unpredictability and uncertainty associated
with these items, but may include actions such as future
restructuring charges, transformational expenses and cash flow
impacts of equity investments.
Essendant Inc. and
Subsidiaries
|
Reconciliation of
Non-GAAP Financial Measures
|
Adjusted Gross
Profit, Adjusted Operating Expenses, Adjusted Operating
Income,
|
Adjusted Net
Income, Adjusted Diluted Earnings Per Share, Adjusted EBITDA, and
Free Cash Flow
|
(Unaudited)
|
(in thousands, except
per share data)
|
|
|
For the Three
Months Ended June 30,
|
|
2018
|
|
2017
(2)
|
|
|
|
|
|
|
Gross
profit
|
$
|
173,206
|
|
$
|
177,564
|
Restructuring charges
- product assortment refinements
|
|
(8,554)
|
|
|
-
|
Adjusted gross
profit
|
$
|
164,652
|
|
$
|
177,564
|
|
|
|
|
|
|
Operating
expenses
|
$
|
164,593
|
|
$
|
160,972
|
Restructuring
charges
|
|
(8,019)
|
|
|
-
|
Transformational
expenses
|
|
(9,854)
|
|
|
(5,444)
|
Litigation
reserve
|
|
-
|
|
|
(3,000)
|
Adjusted operating
expenses
|
$
|
146,720
|
|
$
|
152,528
|
|
|
|
|
|
|
Operating
income
|
$
|
8,613
|
|
$
|
16,592
|
Gross profit and
operating expense adjustments noted above
|
|
9,319
|
|
|
8,444
|
Adjusted operating
income
|
$
|
17,932
|
|
$
|
25,036
|
|
|
|
|
|
|
Net (loss)
income
|
$
|
(97)
|
|
$
|
5,096
|
Gross
profit and operating expense adjustments noted above
|
|
9,319
|
|
|
8,444
|
Non-GAAP tax provision
on adjustments
|
|
|
|
|
|
Product assortment
refinements
|
|
2,870
|
|
|
-
|
Restructuring
charges
|
|
(2,690)
|
|
|
-
|
Transformational
expenses
|
|
(3,306)
|
|
|
(2,085)
|
Litigation
reserve
|
|
-
|
|
|
(1,164)
|
Income tax provision
on adjusted net loss
|
|
(3,126)
|
|
|
(3,249)
|
Adjusted net
income
|
$
|
6,095
|
|
$
|
10,291
|
|
|
|
|
|
|
Diluted (loss) income
per share (1)
|
$
|
-
|
|
$
|
0.14
|
Gross profit and
operating expense adjustments noted above
|
|
0.25
|
|
|
0.23
|
Non-GAAP tax provision
on adjustments
|
|
(0.09)
|
|
|
(0.09)
|
Adjusted diluted
earnings per share
|
$
|
0.16
|
|
$
|
0.28
|
|
|
|
|
|
|
Net (loss)
income
|
$
|
(97)
|
|
$
|
5,096
|
Income tax (benefit)
expense
|
|
(140)
|
|
|
4,474
|
Interest and other
expense, net
|
|
8,850
|
|
|
7,022
|
Depreciation and
amortization
|
|
10,591
|
|
|
10,569
|
Equity compensation
expense
|
|
2,411
|
|
|
1,570
|
Gross profit and
operating expense adjustments noted above
|
|
9,319
|
|
|
8,444
|
Adjusted earnings
before interest, taxes, depreciation and amortization
(EBITDA)
|
$
|
30,934
|
|
$
|
37,174
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
$
|
45,103
|
|
$
|
72,786
|
Net cash used in
investing activities
|
$
|
(26,938)
|
|
$
|
(5,365)
|
Add: Investment in
independent reseller channel (3)
|
|
19,000
|
|
|
-
|
Free cash
flow
|
$
|
37,165
|
|
$
|
67,421
|
|
|
(1)
|
Per share amounts for
the three months ended June 30, 2018 under GAAP reflect basic
earnings per share due to the net loss. The adjusted diluted
earnings per share is based on diluted shares
outstanding.
|
(2)
|
Revised for the
impact of the adoption of a new pension accounting
pronouncement.
|
(3)
|
The Company invested
$19 million during the second quarter in the independent reseller
channel as part of its strategic driver to accelerate sales
performance in key channels. The Company's share of earnings and
losses of its investees is reflected in the Condensed Consolidated
Statement of Operations and includes the investments in the
Condensed Consolidated Balance Sheet.
|
|
For the Six Months
Ended June 30,
|
|
2018
|
|
2017
(2)
|
|
|
|
|
|
|
Gross
profit
|
$
|
294,382
|
|
$
|
363,231
|
Restructuring charges
- product assortment refinements
|
|
34,269
|
|
|
-
|
Adjusted gross
profit
|
$
|
328,651
|
|
$
|
363,231
|
|
|
|
|
|
|
Operating
expenses
|
$
|
344,199
|
|
$
|
532,098
|
Restructuring
charges
|
|
(22,080)
|
|
|
-
|
Transformational
expenses
|
|
(14,084)
|
|
|
(8,395)
|
Payment on notes
receivable
|
|
110
|
|
|
-
|
Impairment of
goodwill
|
|
-
|
|
|
(198,828)
|
Litigation
reserve
|
|
-
|
|
|
(9,000)
|
Adjusted operating
expenses
|
$
|
308,145
|
|
$
|
315,875
|
|
|
|
|
|
|
Operating
loss
|
$
|
(49,817)
|
|
$
|
(168,867)
|
Operating expense
adjustments noted above
|
|
70,323
|
|
|
216,223
|
Adjusted operating
income
|
$
|
20,506
|
|
$
|
47,356
|
|
|
|
|
|
|
Net loss
|
$
|
(51,537)
|
|
$
|
(183,498)
|
Gross
profit and operating expense adjustments noted above
|
|
70,323
|
|
|
216,223
|
Non-GAAP tax provision
on adjustments
|
|
|
|
|
|
Product assortment
refinements
|
|
(6,864)
|
|
|
-
|
Restructuring
charges
|
|
(5,886)
|
|
|
-
|
Transformational
expenses
|
|
(4,267)
|
|
|
(3,203)
|
Payment on notes
receivable
|
|
25
|
|
|
-
|
Impairment of
goodwill
|
|
-
|
|
|
(6,559)
|
Litigation
reserve
|
|
-
|
|
|
(3,488)
|
Income tax provision
on adjusted net loss
|
|
(16,992)
|
|
|
(13,250)
|
Adjusted net
income
|
$
|
1,794
|
|
$
|
19,475
|
|
|
|
|
|
|
Diluted loss per share
(1)
|
$
|
(1.38)
|
|
$
|
(4.97)
|
Gross profit and
operating expense adjustments noted above
|
|
1.88
|
|
|
5.86
|
Non-GAAP tax provision
on adjustments
|
|
(0.45)
|
|
|
(0.36)
|
Adjusted diluted
earnings per share
|
$
|
0.05
|
|
$
|
0.53
|
|
|
|
|
|
|
Net loss
|
$
|
(51,537)
|
|
$
|
(183,498)
|
Income tax (benefit)
expense
|
|
(15,352)
|
|
|
146
|
Interest and other
expense, net
|
|
17,072
|
|
|
14,485
|
Depreciation and
amortization
|
|
21,389
|
|
|
21,534
|
Equity compensation
expense
|
|
4,441
|
|
|
4,038
|
Gross profit and
operating expense adjustments noted above
|
|
70,323
|
|
|
216,223
|
Adjusted earnings
before interest, taxes, depreciation and amortization
(EBITDA)
|
$
|
46,336
|
|
$
|
72,928
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
$
|
23,678
|
|
$
|
125,811
|
Net cash used in
investing activities
|
$
|
(34,730)
|
|
$
|
(13,677)
|
Add: Investment in
independent reseller channel (3)
|
|
19,000
|
|
|
-
|
Free cash
flow
|
$
|
7,948
|
|
$
|
112,134
|
|
|
(1)
|
Per share amounts for
the six months ended June 30, 2018 and 2017 under GAAP reflect
basic earnings per share due to the net loss. The adjusted diluted
earnings per share is based on diluted shares
outstanding.
|
(2)
|
Revised for the
impact of the adoption of a new pension accounting
pronouncement.
|
(3)
|
The Company invested
$19 million during the second quarter in the independent reseller
channel as part of its strategic driver to accelerate sales
performance in key channels. The Company's share of earnings and
losses of its investees is reflected in the Condensed Consolidated
Statement of Operations and includes the investments in the
Condensed Consolidated Balance Sheet.
|
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SOURCE Essendant Inc.